Tyson Foods officials visit Wall Street, outline growth plan to investors

Tyson Foods continues to reinvent its business model at 84 years old. Company executives were in New York this week along with several board members holding an investor conference on Thursday (June 20) and ringing the closing bell on Wall Street on Wednesday.

“Grandad and dad would be proud of the company today and how we have changed and yet operated by the same set of values they taught me,” Chairman John Tyson said as he opened the investor conference on Thursday. “Three generations have been involved in the business and the fourth generation will be as well.”

The company’s executive team spoke to the investment community about the opportunities Tyson Foods has to continue its growth both organically and through acquisitions. The company has already been a stellar growth story in the past several years. Since 2013, Tyson Foods has produced a compound growth rate of 22.21% in adjusted earnings per share and grew its operating income by 19.07% over the five-year period.

Looking back before the Hillshire Brands acquisition, Tyson Foods said its 10-year compounded annual growth rate for earnings is 33.6%. Since 2008, operating income has grown by 23.25% on a compounded annual basis.

“We’re poised for long-term growth because we understand consumers and can meet their needs through a broad portfolio of diverse products,” said Tyson Foods President and CEO Noel White. “As we look ahead, prepared foods and value-added chicken are expected to be the most profitable segments and international is where we see the most opportunity for significant growth.”

The prepared foods division of Tyson Foods represented just 3% of profits five years ago and today generates 30%, company officials noted. Looking ahead to 2023, Tyson Foods expects prepared foods sales will approach nearly half of the total revenue for the company, up from 22% today. The international business is just about 1% of sales today and that is expected to increase to roughly 10% by 2023. (These are assumptions only and not to be modeled into earnings projections.)

Donnie King, Tyson Foods’ group president of International, spoke about the opportunities the company has to grow its global footprint to meet the demand of protein in the coming years. He said 98% of global protein consumption growth will come from outside the U.S. and 70% of that growth in volume is coming from Asia, with the recent acquisitions of Keystone and BRF S.A. assets in Thailand and Europe. Today, Tyson Foods’ global footprint includes 10 countries where it has operations. Just two years ago the company has only a small presence in India and in China. After the acquisition of Keystone and BRF, Tyson Foods has seen a dramatic increase in growth to $7 billion in annual sales, which includes current U.S. exports.

PULL DON’T PUSH
King said the new strategy for Tyson Foods internationally is a pull model which focuses on meeting demand and leveraging all the company’s global assets and customers relationships. In the past, King said Tyson Foods had tried to export a push model (commodity business) that did not perform up to par.

Credit Suisse analyst Rob Moskow asked executives to explain how they plan to do better than their past lackluster performance on the international stage.

King explained the company has learned a lot. He recently returned to the company to run the international business after taking a two-year hiatus from the company. He said Tyson Foods’ new push model will work with customers who really want the products, then the company will use its scale and local expertise within those international markets to help lead the way.

King said Tyson Foods employs roughly 1,100 workers in Thailand and this business is growing as it serves many strategic customers but also has the ability to do highly customized products.
“We are going to have to add capacity in this market going forward to keep up with demand. The same is true in China and by 2021 we are going to have made capacity investments in these businesses we just acquired,” King explained.

He said the local marketing teams within countries like China are working to drive demand. Between 2017 and 2018, Tyson Foods’ branded chicken grew revenue by 25% and volumes increased by 34%. E-commerce sales in China have exploded during the same period. Revenue grew 83% and volumes increased 82%. King said this directly relates to key customers and ongoing work by the local teams in China.

King said the international strategy for the future is “One Tyson” — a processor of beef, chicken, pork and prepared foods with a global supply chain to more efficiently and effectively serve customer needs by sourcing more locally.

WORK IN PROGRESS
The one area Tyson Foods was not happy in the recent quarter was the chicken segment. Chad Martin, group president for chicken, told the investment community the model was not broken despite the recent weakness in the second quarter.

He said Tyson Foods is fixing the problems and continues to focus on growing its value-added sales which added $2 billion to the segment’s second quarter performance. He said Tyson Foods is sourcing more grain directly from farmers and continuing to add innovation through the business that will increase efficiencies and reduce labor costs over time.

The ongoing impact of African swine fever is expected to be a positive for Tyson Foods’ chicken, pork and beef businesses, but will also likely increase the raw material costs for the company’s prepared foods business.

Lastly, Tyson Foods said it will continue to invest in plant-based proteins and looks forward to the reception of its Raised & Rooted branded products hitting grocery retailers in Northwest Arkansas and Chicago in July. Tyson Foods said it will continue to innovate in the alternative meat space, with plans to take the products into foodservice as well. The company will leverage its customer relationships across foodservice to have deep penetration in this growing segment over the next year or so.

Wall Street seemed to like what it heard from executives as Tyson Foods shares (NYSE: TSN) rose more than 1.23% to $78.72 in the morning session Thursday. Over the past 52 weeks, the share price has ranged from $49.77 to $84.30. Analysts’ consensus 12-month target price for Tyson Foods is $85.08.